Durafabric was a very successful company. Banner was a new customer of Durafabric, who wants to apply the credit application. Banner was applying for a $25,000 credit line; that is, the ability to purchase up to $25,000 of material and have 30 days to pay the bill. The forms use to evaluate an applicant's ability to pay bills. Balance sheet of Banner 1997 1996 1995 Current Assets Cash & equivalents 75 $1,498 $2,253 Accounts receivable 22,015 25,655 23,282 Inventory 31,767 34,606 31,730 Prepaids 7,344 7,358 8,341 Deferred income taxes 7,371 4,815 Total current assets 61,201 76,488 70,421 Property, plant & equipment Land and buildins 7,143 7,002 6,418 Machinery & equipment 8,532 9,206 8,134 Leasebold improvements 2,424 1,810 1,688 18,099 18,018 16,240 Less accumulated depreciation -4,846 -4,048 -3,080 13,253 13,970 13,160 Other assets 5,807 3,992 2,263 Total assets 80,261 94,450 85,844 Liabilities & Stockholders' equity Current Liabilities Notes payable to banks 15,608 13,000 8,147 Accounts payable 9,610 7,735 3,220 Accrued expenses 8,502 8,220 7,654 Accrued licensing fees 2,994 2,312 2,819 Accrued advertising 2,318 2,768 2,885 Current portion of long term debt 470 695 656 Total current liabilities 39,502 34,730 25,381 ��� Long-term debt, less current portion 2,320 2,926 4,914 Total debt 41,822 37,656 30,295 Stockholders' equity Common stock 140 139 134 Additional paid-in capital 46,108 45,995 45,694 Retained earning (deficit) -7,809 10,660 9,721 Total stockholders' equity 38,439 56,794 55,549 Total debt and equity 80,261 94,450 85,844 Income statement of Banner 1997 1996 1995 Sales $175,115 $202,981 $181,706 cost of sales 124,100 139,326 124,145 Gross Profit 51,015 63,655 57,561 Royalty income 1,865 1,725 1,561 Selling, general & administrative expense 64,991 60,843 55,501 Restructuring costs 370 (Loss) income from operation -12,111 4,167 3,621 Other income 52 223 152 Interest expense -3,636 -2,824 -2,630 (Loss) income before income taxes -15,695 1,566 1,143 Income taxes 2,772 628 533 Net (loss) income -18,467 938 610 Basic and diluted (loss) earnings per share ($0.67) $0.04 $0.03 Cash flow of Banner 1997 1996 1995 Cash flow from operating activities Net income (loss) -18,467 938 610 Adjustments to net (loss) income: Depreciation and amortization 2,677 1,740 1,385 Provision for bad debts 324 1,100 519 Deferred income taxes 7,371 -2,556 3,429 Change in operating assets and liabilities Accounts receivable 3,640 -2,373 3,479 Inventories 2,839 -2,876 7,872 Prepaid expenses and other assets 14 983 -1,833 Accounts payable and accrued expenses 2,389 4,457 -4,695 Net cash (used) provided by operating activities 787 1,413 10,766 Cash flows from investing activities Purchase of property, plant & equipment -2,286 -3,410 -1,074 Other, net -1,815 -1,729 -345 Net cash used by investing activities -4,101 -5,139 -1,419 Cash flows from financing activities Repayment of long term borrowing -1,426 -1,277 -9,889 Borrowing on credit arrangements 3,204 4,182 Sale of common stock 114 67 55 Net cash provided (used) by financing activities 1,892 2,972 -9,834 Net decrease in cash -1,422 -754 -487 Cash & cash equivalents-beginning of year 1,498 2,253 2,740 Cshe & cash equivalents-end of year 75 1,498 2,253 Questions: 1. Calculate the cash flow ratios. Discuss your conclusions gained from the picture presented with the cash flow ratios. 2. Are there any qualitative factors about Banner that would encourage or discourage you from granting a line of credit? These would be in contrast to the quantitative factors in the various ratios. 3. Would you grant Banner Corporation the credit line? Justify your decision.
Durafabric was a very successful company. Banner was a new customer of Durafabric, who wants to apply the credit application. Banner was applying for a $25,000 credit line; that is, the ability to purchase up to $25,000 of material and have 30 days to pay the bill. The forms use to evaluate an applicant's ability to pay bills.
Balance sheet of Banner
1997 | 1996 | 1995 | |
Current Assets | |||
Cash & equivalents | 75 | $1,498 | $2,253 |
Accounts receivable | 22,015 | 25,655 | 23,282 |
Inventory | 31,767 | 34,606 | 31,730 |
Prepaids | 7,344 | 7,358 | 8,341 |
7,371 | 4,815 | ||
Total current assets | 61,201 | 76,488 | 70,421 |
Property, plant & equipment | |||
Land and buildins | 7,143 | 7,002 | 6,418 |
Machinery & equipment | 8,532 | 9,206 | 8,134 |
Leasebold improvements | 2,424 | 1,810 | 1,688 |
18,099 | 18,018 | 16,240 | |
Less |
-4,846 | -4,048 | -3,080 |
13,253 | 13,970 | 13,160 | |
Other assets | 5,807 | 3,992 | 2,263 |
Total assets | 80,261 | 94,450 | 85,844 |
Liabilities & |
|||
Current Liabilities | |||
Notes payable to banks | 15,608 | 13,000 | 8,147 |
Accounts payable | 9,610 | 7,735 | 3,220 |
Accrued expenses | 8,502 | 8,220 | 7,654 |
Accrued licensing fees | 2,994 | 2,312 | 2,819 |
Accrued advertising | 2,318 | 2,768 | 2,885 |
Current portion of long term debt | 470 | 695 | 656 |
Total current liabilities | 39,502 | 34,730 | 25,381 |
��� | |||
Long-term debt, less current portion | 2,320 | 2,926 | 4,914 |
Total debt | 41,822 | 37,656 | 30,295 |
Stockholders' equity | |||
Common stock | 140 | 139 | 134 |
Additional paid-in capital | 46,108 | 45,995 | 45,694 |
Retained earning (deficit) | -7,809 | 10,660 | 9,721 |
Total stockholders' equity | 38,439 | 56,794 | 55,549 |
Total debt and equity | 80,261 | 94,450 | 85,844 |
Income statement of Banner
1997 | 1996 | 1995 | |
Sales | $175,115 | $202,981 | $181,706 |
cost of sales | 124,100 | 139,326 | 124,145 |
Gross Profit | 51,015 | 63,655 | 57,561 |
Royalty income | 1,865 | 1,725 | 1,561 |
Selling, general & administrative expense | 64,991 | 60,843 | 55,501 |
Restructuring costs | 370 | ||
(Loss) income from operation | -12,111 | 4,167 | 3,621 |
Other income | 52 | 223 | 152 |
Interest expense | -3,636 | -2,824 | -2,630 |
(Loss) income before income taxes | -15,695 | 1,566 | 1,143 |
Income taxes | 2,772 | 628 | 533 |
Net (loss) income | -18,467 | 938 | 610 |
Basic and diluted (loss) earnings per share | ($0.67) | $0.04 | $0.03 |
Cash flow of Banner
1997 | 1996 | 1995 | |
Cash flow from operating activities | |||
Net income (loss) | -18,467 | 938 | 610 |
Adjustments to net (loss) income: | |||
Depreciation and amortization | 2,677 | 1,740 | 1,385 |
Provision for |
324 | 1,100 | 519 |
Deferred income taxes | 7,371 | -2,556 | 3,429 |
Change in operating assets and liabilities | |||
Accounts receivable | 3,640 | -2,373 | 3,479 |
Inventories | 2,839 | -2,876 | 7,872 |
Prepaid expenses and other assets | 14 | 983 | -1,833 |
Accounts payable and accrued expenses | 2,389 | 4,457 | -4,695 |
Net cash (used) provided by operating activities | 787 | 1,413 | 10,766 |
Cash flows from investing activities | |||
Purchase of property, plant & equipment | -2,286 | -3,410 | -1,074 |
Other, net | -1,815 | -1,729 | -345 |
Net cash used by investing activities | -4,101 | -5,139 | -1,419 |
Cash flows from financing activities | |||
Repayment of long term borrowing | -1,426 | -1,277 | -9,889 |
Borrowing on credit arrangements | 3,204 | 4,182 | |
Sale of common stock | 114 | 67 | 55 |
Net cash provided (used) by financing activities | 1,892 | 2,972 | -9,834 |
Net decrease in cash | -1,422 | -754 | -487 |
Cash & cash equivalents-beginning of year | 1,498 | 2,253 | 2,740 |
Cshe & cash equivalents-end of year | 75 | 1,498 | 2,253 |
Questions:
1. Calculate the cash flow ratios. Discuss your conclusions gained from the picture presented with the cash flow ratios.
2. Are there any qualitative factors about Banner that would encourage or discourage you from granting a line of credit? These would be in contrast to the quantitative factors in the various ratios.
3. Would you grant Banner Corporation the credit line? Justify your decision.
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